China's apparent oil demand* in April increased 5.4% from a year earlier to 42.89 million metric tons (mt), or an average 10.48 million barrels per day (b/d), according to a just-released Platts analysis of Chinese government data.

Apparent demand during the month was mainly supported by an increase in demand for light-end products such as gasoline.

China's refinery throughput in April averaged 10.54 million b/d, rising 6.9% from a year earlier, data from the country's National Bureau of Statistics showed May 13.

On the other hand, China was a net oil product exporter in April, with volumes totaling 240,000 mt, according to data released May 8 by the General Administration of Customs.

During the first four months of this year, China's total apparent oil demand also averaged 10.48 million b/d, an increase of 4.4% over the same period of 2014. This continued to be the fastest pace of year-to-date growth since 2011 and defied a relatively weak macroeconomic outlook.

'Apparent demand figures may be inflated compared with actual oil consumption because crucial data such as inventories are not taken into account,' said Platts senior writer for China, Song Yen Ling.

http://www.oilvoice.com/n/Platts-Report-China-Oil-Demand-Climbed-54-Year-over-Year-in-April/cc368b914fc4.aspx

Natural gas production in the Marcellus shale, which has grown over the past decade from next to nothing to the source of about a fifth of U.S. output, may decline for the first time if prices in the basin remain low for much longer, according to federal government data.

The U.S. Energy Information Administration says production in the fast-growing field in Pennsylvania and West Virginia is set to remain flat for the next few years before beginning a very slow decline primarily because of depressed gas prices.

Recent data supports signs of a slowdown. The number of rigs in the area has dwindled in recent months to its lowest since 2011, and drillers including Chesapeake Energy Corp and Cabot Oil & Gas Corp have temporarily shut in some production due to weak regional prices.

Those low prices are threatening the basin with its first annual decline in output since producers started using hydraulic fracturing and horizontal drilling to develop the formation.

But many private analysts say output from the Marcellus will continue to grow over the next several years as demand for gas increases and pipeline companies complete more projects to transport the fuel out of the region, boosting local prices that have fallen to their lowest in at least 14 years.

"We see some slow growth in the Marcellus each year out to 2020" because of new pipelines, said Keith Barnett, who heads fundamental analysis at Asset Risk Management LLC in Houston.

The EIA expects output to remain flat through 2018 before declining about 1 percent a year from 2019 to 2025, according to its 2015 Annual Energy Outlook.

"Relatively low gas prices, combined with low oil prices, have slowed drilling in the Marcellus so production from new wells is only offsetting the decline in old wells," said EIA lead upstream analyst Dana Van Wagener.

The EIA forecast prices in parts of the Marcellus would remain below $2 through 2016 and not exceed $4 until 2020.

The sheer size of the Marcellus makes its continued growth vital to the expected expansion of the U.S. gas market. The basin produces twice as much gas as the nation's second-biggest shale oil and gas play, the Eagle Ford in South Texas.

Prices this year at Dominion South E-DOMSP-IDX, an important Marcellus hub in southwestern Pennsylvania, have averaged $1.88 per million British thermal units on the IntercontinentalExchange, the lowest on record, according to Reuters data back to 2001.

"Some production declines this year are maintenance-related and should come back quickly, while others are economic," said Charles Nevle, vice president of energy data provider PointLogic in Houston.

http://www.reuters.com/article/2015/05/28/natgas-marcellus-production-idUSL1N0YA2LJ20150528

Brazil's state-run oil company Petrobras canceled leases with Schahin Petroleo e Gas SA for five offshore oil drilling and production vessels after a cash crunch forced the ship leaser to remove the equipment from service for nearly a month, Schahin said on Thursday.

The decision, if upheld, will result in the loss of more than 1,000 related jobs, Schahin said, while creditors and investors stand to lose more than $4 billion. Schahin said it plans to sue Petrobras, as the oil company is known, to reinstate the contracts.

Petrobras has been trying to slash costs in the face of falling oil prices, soaring debt and record losses related to poor planing and the fallout from a giant price-fixing, bribery and political kickback scandal.

In the lower oil price environment, Petrobras, the world's most indebted oil company, and third most indebted non-financial company, faces a market with a growing number of unused vessels and falling day rates. Deepwater drillships that rented for $500,000 or $600,000 a day several years ago can now be leased for $400,000 or less, according to industry sources.

The five Schahin vessels are the drillships Cerrado Sertão and Lancer and the semi-submersible oil production platforms Amazônia and Pantanal. All had been on long-term leases.

Schahin said it was forced in early April to temporarily pull these vessels from service with Petrobras for nearly a month and move them to port after a lack of cash to pay debt led a creditor to seek the sale of assets. The creditor was leasing the Pantanal and Amazônia to Schahin.

In late April, after renegotiating a $1 billion reduction in debt Schahin informed Petrobras that the ships were ready for service. On May 21 Petrobras canceled the leases, Schahin said.

http://www.reuters.com/article/2015/05/28/brazil-petrobras-schahin-idUSL1N0YJ2O120150528

Seadrill has agreed with Saudi Aramcoto reduce its dayrate for four jackups over a period of one year.

Seadrill has a three-year firm contract from Aramco for the AOD rigs that is due to expire next year, although there is an option to extend until 2017.

During 1Q, Seadrill signed one new contract, with a duration of a year, with Coastal Energy for the jackup West Cressida, with potential revenue of $35 million

Currently the contractor has 15 rigs under construction, comprising four drillships, three semis and eight jackups. Total remaining yard instalments for these newbuilds are around $4.3 billion, with $1.1 billion already paid to the yards in pre-delivery instalments

Seadrill says the downturn in the offshore drilling market has continued so far this year and signs point to demand remaining significantly lower than in 2014.

The outlook for ultra-deepwater activity beyond 2015 is difficult to judge, it adds, with most oil companies not looking to add rig capacity at this point. Capacity utilization will likely dip further as the year progresses, leading to a significant number of ultra-deepwater rigs being stacked by the end of the year.

Currently the global order book for new ultra-deepwater rigs totals 89 units, of which 29 are Sete newbuilds. At the same time, however, around 70 units are coming off contracts, many of which are due for a 15 or 20- year classing between now and the end of 2017.

Over the longer term, Seadrill says it is difficult to picture a market that does not require deep and ultra-deepwater production to satisfy world hydrocarbon demand. During the current downturn, however, rig owners will likely continue to focus on cost-saving measures and operational performance will be a must as oil companies seek to renegotiate or cancel contracts.

Turning to the premium jackup sector, the contractor says shelf production remains an attractive, cost- effective source of production for oil companies.

Following the drop in dayrates, there may be increased activity in the near term for short-term contracts. However, an excess supply situation is emerging, with roughly 50 jackups set to enter service this year and 100 between now and 2017. As a result, pricing is likely to come under continued pressure.

Operators will continue to focus their activity on the most capable units, with stacking and scrapping of older jackups accelerating. There are currently around 240 units in the global fleet that are over 30 years old, and some will probably be retired if the downturn continues, Seadrill says.

http://www.offshore-mag.com/articles/2015/05/seadrill-more-ultra-deepwater-rigs-set-to-be-stacked.html

U.S. crude oil refinery inputs averaged about 16.5 million barrels per day during the week ending May 22, 2015, 237,000 barrels per day more than the previous week’s average. Refineries operated at 93.6% of their operable capacity last week. Gasoline production increased last week, averaging about 10.2 million barrels per day. Distillate fuel production increased last week, averaging 4.9 million barrels per day.

U.S. crude oil imports averaged 6.7 million barrels per day last week, down by 503,000 barrels per day from the previous week. Over the last four weeks, crude oil imports averaged over 6.8 million barrels per day, 3.4% below the same four-week period last year. Total motor gasoline imports (including both finished gasoline and gasoline blending components) last week averaged 775,000 barrels per day. Distillate fuel imports averaged 248,000 barrels per day last week.

U.S. commercial crude oil inventories (excluding those in the Strategic Petroleum Reserve) decreased by 2.8 million barrels from the previous week. At 479.4 million barrels, U.S. crude oil inventories are at the highest level for this time of year in at least the last 80 years. Total motor gasoline inventories decreased by 3.3 million barrels last week, but are near the upper limit of the average range. Finished gasoline inventories increased while blending components inventories decreased last week. Distillate fuel inventories increased by 1.1 million barrels last week but are in the lower half of the average range for this time of year. Propane/propylene inventories rose 2.2 million barrels last week and are well above the upper limit of the average range. Total commercial petroleum inventories increased by 2.2 million barrels last week.

Total products supplied over the last four-week period averaged about 19.8 million barrels per day, up by 3.5% from the same period last year. Over the last four weeks, motor gasoline product supplied averaged over 9.2 million barrels per day, up by 1.6% from the same period last year. Distillate fuel product supplied averaged over 4.1 million barrels per day over the last four weeks, down by 0.4% from the same period last year. Jet fuel product supplied is up 5.0% compared to the same four-week period last year.

http://ir.eia.gov/wpsr/wpsrsummary.pdf

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Investors are cautiously pulling money out of energy producers for the first time in eight months, taking short-term gains after oil rebounded from a six-year low.

More than $1.55 billion has been withdrawn this month from exchange-traded funds concentrated on energy stocks such as Exxon Mobil Corp. and Chevron Corp. It’s on pace for the first monthly setback for the group since investors began pouring into the sector in October with an eye toward profiting from an eventual recovery in prices.

“The thesis that oil is too cheap and it has to go higher maybe is not as compelling a case with oil at $60 as it was when it was at $42,”said Ryan Issakainen, a strategist at First Trust Advisors LP in Wheaton, Illinois.

Still, $5.4 billion remains of the new money invested in energy ETFs since the year began, suggesting that traders are trimming positions, not starting a rout. On May 1, energy ETF’s lost $475.8 million, days before U.S. crude closed at this year’s high of $60.93 a barrel on May 6, ending a 49-day rally from a six-year low of $43.46 on March 17.

Because ETFs own baskets of shares, they enable investors to place broad bets on the direction of markets at lower cost than buying and trading individual stocks. The price of crude determines the underlying value for most energy companies.

Investors withdrawals from energy ETFs so far this month include $806.8 million from the Energy Select SPDR Fund, the largest energy-stock ETF, which had swelled to a record $15 billion of market value May 1.

“The hot money, the money that’s looking for short term trades, may have taken some of those gains,” Issakainen said. “I don’t make much more of it than people making tactical moves.”

Although withdrawals from energy ETFs have slowed in the past week, they haven’t stopped. More than $400 million was taken out of the sector in each of the first two weeks of May. Withdrawals over the past seven days were about $338 million.

Crude may fall back further, said Chris Johnson, a strategist at Macquarie Capital (USA) Inc. in New York. “The fundamentals for quite some time haven’t supported the price rise we’ve seen,” he said. “Uptick in demand has clearly not been in line with supply.”

http://www.bloomberg.com/news/articles/2015-05-28/investors-pulling-energy-sector-bets-for-first-time-in-8-months

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A unit of American Midstream Partners LP is holding a binding open season through June 22 for a new 50-mile oil pipe gathering/transportation system in McKenzie County in northwest North Dakota, the heart of the state's producing region.

American Midstream Bakken LLC plans to transport up to 40,000 b/d of crude oil for delivery to major intrastate and interstate pipeline systems beginning in June.

"The gathering system is essentially built but not operating," a spokesperson told NGI's Shale Daily on Wednesday. "We anticipate it will be operating in June."

The Denver-based company said the pipe initially would be able to transport up to 15,000 b/d with a maximum capacity of up to 40,000 b/d.

"During the binding open season, potential shippers have the opportunity to obtain crude oil transportation service on the Bakken system on a committed or uncommitted basis at various tier-based rates, according to volumes transported," the spokesperson said. "Parties interested in becoming committed shippers can do so by making long-term acreage or volumetric dedications for crude oil gathering and transportation service on the Bakken system."

The open season also offers potential shippers the option of delivering volumes into the American Midstream gathering system via truck.

http://www.naturalgasintel.com/articles/102460-proposed-bakken-oil-pipeline-testing-market-interest?utm_source=dlvr.it&utm_medium=twitter

Saudi Aramco may raise the number of its oil and gas drilling rigs to as high as 250 next year if oil prices continue to firm and as domestic demand for gas increases, industry sources said on Thursday.

Currently the national energy giant has 212 rigs of both types in operation and that could rise to between 220 and 250 if conditions permit, sources familiar with the plans said. "It all depends on the oil price of course," said one.

Brent oil is now around $62 a barrel, up from a low of $45 in January though still far from the $100 mark which Saudi officials said they favoured early last year. Saudi Arabia raised its crude production in April to a record high of 10.308 million barrels per day.

"They are looking for new rigs to replace the poorly performing rigs, and this will be to maintain potential now that demand is coming back - that is for the oil side," another source said.

"As for the gas side, they need to add more rigs to increase production, and they are looking for deep gas." Once Aramco starts looking for shale gas in the north, the number will be even higher, he added.

As a result of the decline in oil prices, Saudi Aramco managed to make big savings on drilling fees this year after asking for discounts from rig contractors and service companies.

http://www.reuters.com/article/2015/05/28/saudi-drilling-rigs-idUSL5N0YJ3GZ20150528

Falcon Oil & Gas told investors that the start-up of a three-well drill programme in Australia’s Beetaloo shale basin is on track for mid-2015.

Tendering and contracting for the rig and key services are currently underway, and drilling locations have been identified.

The wells are designed to penetrate both oil andgas sections within the Beetaloo’s Middle Velkerri shale.

Falcon has a 30% stake in the project in which it is partnered by Australian firm Origin and Sasol.

Philip O’Quigley, Falcon’s chief executive, said: “Our initial three well, fully funded exploration drilling campaign in the Beetaloo basin, Australia is on track to commence shortly and we are working closely with our partners Origin and Sasol to complete preparations ahead of drilling this highly attractive basin."

O’Quigley also highlighted that there continue to be encouraging signs from the South African authorities in regards to shale exploration.

Falcon is staked as an early mover in the nascent sector, having previously secured rights to a significant footprint of prospective acreage in the country’s Karoo basin.

The South African Department of Mineral Resources is expected to begin issuing licences this year, O’Quigley said. And it is understood that Falcon’s application is currently being processed.

In this morning’s first quarter results statement, for the three months to March 31, the pre-revenue exploration companyreported a $237,000 loss. It ended the period in what it called a strong financial position, with US$11.5mln of cash and no debt.

Falcon said it maintains a focus on strict cost management and efficient operations.

http://www.proactiveinvestors.co.uk/companies/news/80850/falcon-oil-gas-looks-forward-to-start-of-beetaloo-shale-drilling-80850.html

French gas and power group Engie hopes to make acquisitions in the oil and gas exploration and production industry in the coming months, an executive at the company formerly called GDF Suez said on Thursday.

"We want to have reserves of more than 1 billion barrels of oil equivalent," Engie head of international exploration and production Didier Holleaux told a seminar. "We have no timing for this target, but going above this level means acquisitions."

Engie had reserves equivalent to about 760 million barrels of oil at the end of 2014, equal to 13 years of production at last year's rate of 55.5 million barrels.

"We are looking at opportunities and we have good hopes of concluding some in the coming months," Holleaux said.

Asked about Engie's reported interest in Canadian oil group Talisman Energy early in 2014, Holleaux said the group had considered looking at a possible bid.

"We looked at it of course, but Talisman was too big ... We did not want to make a bid for the whole company as we had reservations about some of its assets," he said.

Asked whether Engie had considered buying Britain's BG Group , Holleaux said that BG had been a bit too big for Engie E&P (exploration and production), and even for Engie as a whole.

Holleaux also said that because of low oil prices, Engie planned a 25 to 30 percent cut in its exploration and production investment budget, which has stood at around 1 billion euros ($1.09 billion) a year in recent years.

He added that large ongoing projects such as Cygnus in Britain, Touat in Algeria and Jangkrik in Indonesia would continue as planned.

The company said in February that the budget of its E&P unit would fall by 400 million euros in the 2015-2016 period.

http://www.reuters.com/article/2015/05/28/engie-oil-idUSL5N0YJ2ZF20150528

The U.S. shale oil boom is turning global crude pricing on its head with the historical notion that light grades shall be priced at a premium to heavy ones quickly disappearing, according to predictions from producer group OPEC.

The trend will have big implications for global oil flows, reducing revenues of light-oil-producing nations such as Nigeria and refiners geared toward heavy crude processing, OPEC said in a draft long-term report, a copy of which was seen by Reuters.

"This supply glut, primarily of light sweet crudes, needs to ease sizably before the oil market steadies. Low oil prices are expected to force some of the costly light sweet crude oil to idle, but the displaced African light sweet crude is also forced to find an alternative market," OPEC said.

This could be a challenge if oil demand growth in Asia and Europe were to stay fragile, the cartel said.

The pressure on sour crudes is not as intense due to tightness, particularly in Europe, as a result of sanctions, war, diversions and other geopolitical issues, OPEC said.

"The war in Syria and the sanctions on Iranian exports to the West have limited availability of sour crudes to Europe for almost three years, causing the value of regional sour crudes to be oddly higher or at small discounts in relation to the sweet crudes," the report said.

It said turbulence in Iraqi production and exports from the country's north also contributed to the tightness in sour grades, as did Russia's decision to divert some of its exports to the Asia-Pacific at the expense of European markets.

More pressure on light sweet crudes is also coming from the fact that most new, sophisticated refining capacities around the world have been designed to process heavy crudes on expectations that light oil would remain scarce.

As a result, most refiners were unable to take advantage of cheaper-than-expected light grades due to limited light conversion refining capacity, particularly in the United States, the OPEC report said.

"It is also difficult to justify altering the configuration of deep conversion refineries after the huge investments that were put into their upgrading prior to the tight oil boom, when the sweet/sour spread was wide enough to justify building such heavy conversion units," it said.

It added that shale gas developments in North America were poised to bring vast quantities of low-priced ethane, which will increasingly displace naphtha and gasoil from global markets.

http://www.reuters.com/article/2015/05/28/opec-oil-quality-idUSL5N0YI32I20150528

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London-listed shares in oil and gas company Ithaca Energy fell by as much as 18 percent after the Calgary-based firm said it had received a legal claim regarding its Greater Stella Area oil field in the North Sea.

The company, which denied any wrongdoing, said a statement of claim had been lodged complaining it had misrepresented the schedule for completing modifications at a floating production facility.

Ithaca said in February that modifications to the "FPF-1" facility, being carried out by UK oil services firm Petrofac Ltd , would not be completed until 2016.

Ithaca noted that the statement of claim had come from a law firm that advertises itself as undertaking investor law suits.

Toronto-based law firm Morganti Legal said in March that it was investigating whether Ithaca's views about the completion date of FPF-1 were "overly optimistic".

Morganti and Petrofac were not immediately available for comment.

http://www.reuters.com/article/2015/05/28/ithaca-energy-claim-idUSL3N0YJ2UG20150528

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BP and The Kansai Electric Co., Inc. (Kansai Electric) today entered into a sales and purchase agreement for liquefied natural gas (LNG), and a cooperation agreement for the purpose of exploring opportunities for business collaboration.

Under the agreements, BP will provide Kansai Electric with up to 13 million tonnes of LNG over 23 years, from BP’s diverse portfolio of LNG sources. In addition, the agreements provide for Kansai Electric and BP to explore areas of cooperation across a wide range of LNG business activities such as LNG trading, and optimisation of LNG ship operations.

Paul Reed, Chief Executive of BP Integrated Supply and Trading, said, “BP highly appreciates the long-term relationship with Kansai Electric that has resulted in the conclusion of these new LNG sales and co-operation agreements. Building on a separate LNG sale and purchase agreement signed in 2013, this new LNG deal entails additional supply from BP’s portfolio. We are very pleased that Kansai Electric and BP have agreed this expanded LNG business and we look forward to working together to explore areas of further cooperation.”

The Kansai Electric Power Co., Inc. is Japan’s second largest electric utility, with 13 million customers and 22,000 employees. It was established in 1951.

BP is active in many of the major LNG producing regions as well as in the main LNG markets. It is involved in LNG projects in Australia, UAE, Indonesia, Egypt, Trinidad and Angola.

BP has a liquefaction tolling agreement for over 4.4 mtpa LNG capacity in train 2 of the Freeport LNG Project in Texas, USA (Freeport). The project is currently under construction with production from train 2 of Freeport expected to begin in 2019.

http://www.gasworld.com/bp-and-kansai-sign-lng-deal/2007484.article?utm_source=GasesSynopsis&utm_medium=twitter&utm_campaign=Feed%3A+gasworld+%28Gasworld+Industrial+Gas+-+Global+News%2C+Conferences+and+Business+Directory%29

The North American oil boom is proving resilient despite low oil prices, producer group OPEC said in its biggest and most detailed report this year, suggesting the global oil glut could persist for another two years.

A draft report of OPEC's long-term strategy, seen by Reuters ahead of the cartel's policy meeting in Vienna next week, forecast crude supply from rival non-OPEC producers would grow at least until 2017.

Sluggish global demand for oil means the call on OPEC's crude will fall from 30 million barrels per day (bpd) in 2014 to 28.2 million in 2017, effectively leaving the group with two options - cut output from current levels of 31 million bpd or be prepared to tolerate depressed oil prices for much longer.

"Since June 2014, oil prices have experienced a significant reduction, reaching levels even lower than the crisis experienced in 2008, yet non-OPEC supply is still showing some growth," the OPEC report said.

Shale oil production has proved to be more resilient than many had originally thought.

"Generally speaking, for non-OPEC fields already in production, even a severe low price environment will not result in production cuts, since high-cost producers will always seek to cover a part of their operating costs," the OPEC report said.

"For future non-OPEC production, only expectations of an oil price environment in the long-term below the marginal cost of production may deter substantial non-OPEC developments. Over the very long term, the economic threshold at which oil companies invest in upstream projects likely reflects their long-term oil price expectations."

It also said that since 1990, most of the forecasts concerning future non-OPEC oil supply have been pessimistic and often erroneous: "For example, non-OPEC production was once projected to peak in the early 1990s and decline thereafter."

OPEC publishes long-term strategy reports every five years. Its 2010 report did not mention shale oil as a serious competitor, highlighting the dramatic change the oil markets have undergone in the past few years.

The long-term report is prepared by OPEC's research team in Vienna and traditionally cautions that it does not articulate the final position of OPEC or any member country on any proposed conclusions it contains.

SWING PRODUCER

OPEC's ability to cut and raise production over the past decades to balance demand has earned it a reputation of being a swing producer. But the long-term report suggested it is tight shale oil that is now playing this role.

"Recent structural changes in the growth patterns of non-OPEC supply as a result of the substantial contributions from North American shale plays might prove to be a turning point (e.g. short lead times of the projects and higher short-term price elasticity)," the report noted.

It said new and cheaper technologies in extraction of tight crude, shale gas, and oil sands would guarantee aggregate growth at 6 percent per year and contribute 45 percent of the growth in energy production to 2035.

"Improved technology, successful exploration and enhanced recovery from existing fields have enabled the world to increase its resource base to levels well above the expectations of the past... The world's liquids resources are sufficient to meet any expected increase in demand over the next few decades," it said.

"With plenty of oil still left in familiar locations, forecasts that the world's reserves are drying out have given way to predictions that more oil than ever before can be found," the report said.

By 2019, OPEC crude supply at 28.7 million bpd will still be lower than in 2014, the report said, and demand for its oil will start rising only after 2018-2019, reaching almost 40 million bpd by 2040.

http://www.reuters.com/article/2015/05/28/oil-opec-report-idUSL5N0YI3CJ20150528

For months Saudi Arabia was cagey about its oil strategy. The kingdom claimed its decision not to cut production and stop the slide in prices was solely about letting the oil market reset itself. That charade is over.

The Saudis now openly boast that their strategy to let oil prices collapse was an attempt to kill U.S. shale production. Citing the nearly 60% drop in the U.S. oil rig count since October and the slowing of U.S. oil production, they are claiming a brilliant triumph.

But rather than kill the U.S. shale revolution, the Saudis have only made it more resilient, sped up its rate of technological innovation and capped oil prices for at least a half-decade or more.

U.S. shale producers will survive and grow. American consumers, paying less for gasoline and heating oil, will be the big winners. The Saudis and their friends in OPEC, so dependent on oil-export revenue, will be the clear losers.

The U.S. shale industry is by necessity becoming more efficient than ever. Low oil prices have become an opportunity. The Saudis have lit a fire under producers to trim the fat, deploy new productivity-boosting technologies and zero in on the most productive geology.

The result is a rapid decline in the break-even price across shale plays. Already, analysts believe it is now $60 per barrel and before long will fall to $50.

Goldman Sachs now predicts that prices will likely hold at $50 for at least the next five years. Shale efficiency and innovation have created a new ceiling for the price of oil. This certainly was not the Saudis' aim.

But, as the Saudis are finding out, we are just in the early innings of a new revolution — "Shale 2.0" as Manhattan Institute fellow Mark Mills calls it. A strong, increasingly efficient and productive U.S. shale industry — powered by American ingenuity and "Made in the USA" drilling and extraction technologies — is here to stay.

Read More At Investor's Business Daily: http://news.investors.com/ibd-editorials-brain-trust/052615-753977-us-shale-efficiency-innovation-up-after-saudi-oil-price-dive.htm#ixzz3bQIwlyuN
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Premier Oil has announced an oil discovery at the Isobel Deep exploration well 14/20-1 in the North Falkland Basin, offshore the Falkland Islands, approximately 30km south of the Sea Lion field.

According to Premier, the Isobel Deep exploration well has been drilled to a depth of 8,289 feet reaching top reservoir on prognosis. The bottom 75 feet of the well consists of oil bearing F3 sands.

These sands were at a higher than expected reservoir pressure and this resulted in an influx into the well, the company said. Premier further notes that as part of the operations to remove the influx, oil was recovered from the well and appears similar in nature to Sea Lion crude.

Premier added that as a result of the new geological information it has been decided to suspend operations on the well and release the Eirik Raude drilling rig to drill in the South Falkland Basin. The rig is expected to return to continue operations in the North Falklands Basin in August.

Premier is now considering the optimal appraisal programme for the Elaine/Isobel complex in PL004.

Andrew Lodge, Exploration Director, commented:

“This is an important play opening discovery in the previously unexplored southern area of Licence PL004. The well has successfully demonstrated a trapping mechanism and the presence of moveable oil in the Elaine/Isobel fan complex.”  

Falkland Oil and Gas Limited (FOGL) has 40% interest in the licence PL004a where the well is located.

Tim Bushell, CEO of FOGL, commented: “We are delighted by the results of this well. Whilst it has not been possible to acquire wireline logs over the F3 reservoir (Isobel Deep), the presence of oil bearing sands is highly encouraging. FOGL believes these initial results open up an exciting new oil play in this part of PL004 and also, significantly reduce the risk on FOGL’s other prospects in the adjacent PL005 licence.

http://www.offshoreenergytoday.com/premier-hits-oil-in-isobel-deep-well-falkland-islands/

A flamboyant bird will get new protections Thursday when federal regulators announce a plan to limit oil and gas drilling on its sprawling western U.S. habitat, which may stave off declaring the greater sage-grouse as endangered.

With a deadline of September to decide if the chicken-sized bird is endangered, Interior Secretary Sally Jewell will unveil ways the Bureau of Land Management will conserve the bird’s habitat, according to two people familiar with the decision. More than half of the grouse’s range is on federal land spread across 11 states.

“In a sense, BLM has been actively working to deflect a listing for some time,” said Kevin Book, an analyst at ClearView Energy in Washington, who hasn’t seen details of the announcement. “Even without the final plan, BLM has already taken at-risk areas out of play for leasing and development.”

Long a totem of the American West, the greater sage-grouse has been at the center of one of the nation’s biggest conservation disputes, pitting energy and development interests against naturalists in lawsuits and lobbying campaigns. A decision on its status would be among the most far-reaching since the U.S. protected the northern spotted owl, disrupting logging communities in Oregon in the 1990s.

“We’ve seen this story before with what the federal government did in Oregon with the spotted owl,” said Kathleen Sgamma, vice president of the Western Energy Alliance, which represents oil and gas producers. “We believe the science doesn’t justify these restrictions.”

The Interior Department is set to issue proposals for 14 different areas Thursday, covering the land it oversees from Wyoming to Nevada. The plans will ban drilling and mining on some of the most pristine areas, and set protections around the leks, or areas where the birds gather in mating season, according to the people, who requested anonymity to discuss the decision before the announcement.

It’s not clear how large the protected areas would be, and if they could be enough to avoid an endangered finding. And oil interests in the Western states may object.

Interior’s U.S. Fish and Wildlife Service has been considering listing the bird as endangered -- prompting opposition from lawmakers and energy interests. Environmentalists say that it’s not clear BLM’s protections will be enough to ensure the bird’s protection.

http://www.bloomberg.com/news/articles/2015-05-27/sage-grouse-protection-said-to-bar-drilling-on-some-federal-land

Four months into oil’s rebound from a six-year low, the tanker market is sending a clear signal that the rally is under threat.

A sudden surge in demand for supertankers drove benchmark charter rates 57 percent higher in the two weeks through May 20. OPEC will have almost half a billion barrels of oil in transit to buyers at the start of June, the most this year, while analysts say about 20 million barrels is being stored on ships in another indication the glut has yet to dissipate.

The Organization of Petroleum Exporting Countries is pumping the most oil in more than two years, determined to defend market share rather than prices. A record cut to the number of active U.S. drilling rigs and billions of dollars of spending reductions by companies since last year’s price plunge has yet to translate into a slump in barrels produced. The world is producing about 1.9 million barrels a day more crude than it needs, according to Goldman Sachs Group Inc.

“Supply of oil continues to build,” said Paddy Rodgers, the chief executive officer of Antwerp-based Euronav NV, whose supertanker fleet can haul 56 million barrels of crude. “All of this oil needs to go somewhere,”

Daily rates for supertankers on the industry’s benchmark route reached $83,412 on May 20, from $52,987 on May 6, according to the Baltic Exchange in London. While rates since retreated to $69,594, they’re still the highest for this time of year since at least 2008.

Brent crude futures advanced almost 40 percent from this year’s low on Jan. 13, and traded at $62.58 a barrel on the London-based ICE Futures Europe exchange at 12:53 p.m. Singapore time Thursday.

OPEC’s 12 members have will have 485 million barrels of oil in transit to buyers in the four weeks to June 6, the most since November, Roy Mason, founder of Oil Movements, a Halifax, England-based company monitoring the flows, said by e-mail Wednesday.

Iraq, the group’s second-largest producer, plans to boost exports to a record 3.75 million barrels a day next month, according to shipping programs.

Spare tanker capacity in the Middle East has seldom been tighter. The combined excess of ships competing for the region’s exports stood at 6 percent last week, the lowest for the time of year in Bloomberg surveys of shipbrokers that started in 2009. While that expanded to 12 percent this week, the monthly average was still the lowest on record for May.

Bullish oil traders may get some comfort from the U.S. Recent drops in oil inventories there are signaling a gradual easing of the glut, Paul Horsnell and other Standard Chartered Plc analysts wrote in a report May 26. It may take at least another quarter for the surplus to disappear, they wrote.

“There still seems to be a lot of physical activity, a lot of oil on the water,” Nigel Prentis, the head of research at Hartland Shipping Ltd. in London, said by phone. While the second quarter is usually quieter as refineries switch to summer fuels for the northern hemisphere, “the market is still busy and rates are incredibly high,” he said.

http://www.bloomberg.com/news/articles/2015-05-27/oil-bulls-beware-soaring-tanker-rates-show-supply-glut-persists-ia7cvht4

Brazil's state-run oil company, Petroleo Brasileiro SA, will pay employees 1.04 billion reais ($331 million) in bonuses for 2014 despite recording its largest-ever loss and rejecting investor dividends, a company union said on Wednesday.

The bonus, known as "a share in results", is a third bigger than in 2013, when the company recorded a profit, and was approved at an annual shareholders meeting on Monday, the union, known by its Portuguese initials FUP, said in a statement.

"The shareholders of Petrobras tried hard, but this time did not receive dividends," FUP said. "Disgusted, they even criticized the company for treating the workers differently."

Officials of Petrobras, as the company is known, did not respond to requests for comment or confirm the authenticity of a Petrobras letter dated Wednesday and addressed to FUP outlining the payments. The letter was published on FUP's website.

While Brazil's government owns a majority of voting common shares, non-government investors, primarily holders of preferred shares, own most Petrobras stock.

Petrobras recorded a 23.6 billion real ($7.5 billion) profit in 2013. In 2014 it had a 21.6 billion real loss, the result of a $17 billion write-down of assets as a result of a massive price-fixing, bribery and political-kickback scandal, poor planning and execution and a decline in oil prices.

The union accused investors of "crying for their dividends."

FUP, closely aligned with the Workers' Party of Brazilian President Dilma Rousseff, herself chairwoman of Petrobras from 2003 to 2010, applauded the company's 2014 performance, the only annual loss in at least two decades.

"The company's positive 2014 results, along with the fabulous profits that have marked its history, are the direct result of the workers," FUP said.

Some holders of preferred shares, the company's most traded class of stock, have explored using a Brazilian law that requires, under some circumstances, the conversion of preferred shares into common stock if minimum dividends are not paid.

Petrobras, the world's most indebted oil company, also faces U.S. and Brazilian lawsuits over the corruption scandal. Worth $290 billion in 2008, Petrobras is worth $55 billion today.

Petrobras, according to the unconfirmed FUP letter, agreed during contract talks to a higher 2014 bonus even if it lost money.

In Brazil, most employees automatically belong to a union. All Petrobras employees, including senior mangers, are eligible for bonuses. Petrobras did not say which employees are eligible for payments, which will be made by mid-June.

http://www.reuters.com/article/2015/05/28/brazil-petrobras-bonus-idUSL1N0YJ05220150528

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South Korea's SK Innovation Co Ltd , which owns the country's biggest refiner SK Energy Co Ltd, said it aims to raise investment in U.S. shale fields and increase partnerships with major crude producers to stabilise energy supplies.

The firm said in a statement on Thursday it wanted to expand its shale gas fields in Oklahoma and Texas, which it acquired last year, into nearby areas. It also aims to boost competitiveness by diversifying crude sources and cutting import costs.

SK Innovation suffered its first loss in decades in the fourth quarter of 2014, though better margins over January to March amid weak global oil prices helped it swing back to a profit of 321.2 billion Korean won ($300.61 million).

The statement, quoting its chief executive and president Chung Chul-khil, also said that for its troubled chemical business its growth strategy would focus on the Chinese market.

The company said it hoped the plans would triple its domestic stock market value to 30 trillion Korean won ($27.09 billion) by 2018.

http://www.reuters.com/article/2015/05/28/skinnovation-southkorea-idUSL3N0YI1JG20150528

India's Gail has sold some of its liquefied natural gas from its US portfolio to Anglo-Dutch supermajor Shell ahead of production from early 2018, its head B.C. Tripathi said on Wednesday.

Gail has a deal to buy 3.5 million tonnes per annum of LNG for 20 years from US-based Cheniere Energy and has also booked capacity for another 2.3 mtpa at Dominion Energy's Cove Point liquefaction plant.

Tripathi refused to elaborate on the volumes, pricing and duration of the deal with Shell, but a trade source said Gail has sold at least 0.5 mtpa LNG to Shell, Reuters reported.

Gail would also issue an LNG swap tender in two months to cut transport costs for supplies to India, he said, adding 0.5 million tonnes of its US LNG has already been booked by local clients while talks were ongoing with domestic and foreign firms for more such deals.

Gail was keen to swap about 2 mtpa of its LNG, Tripathi had said in January 2014.

India's gas demand is set to rise as the federal government has approved policies to boost power and fertiliser production using imported gas.

Gas demand in the world's second most populous nation, however, declined in the quarter ending in April as alternative fuel like furnace oil turned cheaper due to rout in global oil markets.

Also, prices of gas sourced under a long-term deal with Qatar have turned costly, tapering the demand for the cleaner fuel.

He said India has used a 10% reduction permissible under a 25-year contract with Qatar's RasGas to import up to 7.5 mtpa the super cooled fuel.

http://www.upstreamonline.com/live/1401146/gail-sells-some-us-lng-to-shell?utm_source=twitterfeed&utm_medium=twitter

As Russia prepares to meet OPEC next week, a briefing paper from a Moscow think tank has shed light on how the government was warned against cutting oil output late last year even though global prices were plummeting.

Speculation was rife that Russia and the oil exporters' cartel might strike a production deal to arrest the slide when Energy Minister Alexander Novak met his Saudi Arabian counterpart last November.

However, the think tank had already advised Novak that OPEC would not cooperate and unilateral action would be costly at a time when Russian state finances were in a dire state.

"If Russia cuts output, OPEC will take our market share in Europe," a team led by energy expert Grigory Vygon said in the previously unpublished paper, commissioned by the Energy Ministry before the Nov. 25 meeting in Vienna.

The paper was prepared by the Skolkovo Institute's energy team, which has subsequently set up the independent Vygon Consulting group.

In the event, Novak opted against lowering Russia's output and two days later Saudi Oil Minister Ali al-Naimi also blocked calls at an OPEC conference for production cuts, sending crude prices to a fresh four-year low and declaring a global battle for market share.

Six months on, the agenda at least will repeat itself next week: non-OPEC producers led by Russia are scheduled to meet the cartel in the Austrian capital on Wednesday and Thursday, before an OPEC conference on Friday.

Benchmark crude at around $63 a barrel remains well below where it was before last November's OPEC meeting. However, it has recovered from a low of $46 hit in January, easing the pressure for radical action.

Therefore OPEC, which controls a third of the global oil market, and Russia, which produces another 12 percent, are unlikely to reverse their output strategy.

The confidential briefing paper, seen by Reuters, said that should Moscow decide to cut output or exports, similar quality OPEC crude - mainly from Saudi Arabia but also from Iran and Libya - would replace as much as 1 million barrels per day (bpd) of Russian oil. That is equivalent to a tenth of both Russian production and of European consumption.

Vygon predicted Saudi Arabia would refuse to cut production as it could weather the low oil price. Instead, OPEC's leading member would use the opportunity to win market share at the expense of rival and more costly producers, such as in the United States or Russia, it said.

That has proven true. Far from cutting, OPEC has increased production by 1.4 million bpd over the past year with Saudi output alone jumping by 450,000 bpd year-on-year to 10.15 million in April.

The paper also predicted that U.S. shale oil producers would prove resilient in maintaining output, even with the much lower prices. That has also proved correct, at least so far.

Russia has pushed its own production up by 200,000 bpd over the past year, hitting an all-time high of more than 10.7 million in April. This is mainly thanks to rising output at state-run Gazprom and freshly nationalised Bashneft.

However, a source close to the Russian team responsible for talks with OPEC said that much has changed since then. "The oil price has bounced back and Russia is kind of coping. There is also an understanding that the Saudis will not cut as they would lose market share, so nor should Russia," said the source.

"The consultations (with OPEC) are under way," he said. "Look at the forecasts we had produced earlier. In that sense, you will understand that we are within the (pricing) corridor that we had forecast."

http://www.reuters.com/article/2015/05/27/opec-russia-idUSL5N0YH2RK20150527

After months of bad news, oil companies working in the North Sea can finally see a glimmer of hope after a leading energy consultant forecast operating costs to plummet over the next two years.

Wood Mackenzie now expects costs in the North Sea, which is one of the most expensive and challenging regions for operators, to fall by 15pc through to the end of 2016.

"High capital and operating costs are the single biggest issue for companies in the UK and Norwegian sectors of the North Sea today," said Malcolm Dickson, principal North Sea analyst for Wood Mackenzie.

"Even before the oil price crash, developing and operating fields while making a profit was challenging and we expected some cost deflation in the sector as activity cooled. The drop in oil price has accelerated the need for lower costs, as companies adjust to protect their cash flows, and changes are now required to correct the industry's cost base."

Cost escalation in the North Sea basin has been a persistant concern for the industry, which had been heightened by the 40pc decline in oil prices since last November.

The UK's main oil producing area has found itself caught in the crossfire between US shale drillers and members of the Organisation of Petroleum Exporting Countries (Opec) who appear to be fighting an oil price war to win greater market share.

However, output from the North Sea has been under pressure for years before Opec decided to keep its production levels unchanged last year effectively triggering the current price war.

"We have already seen rig rates dropping significantly with reductions of up to 20pc for new contracts agreed in 2015," said Mr Dickson. "40pc of mobile rigs in the UK and 23pc in Norway are either currently without contract or due to come off by the end of 2015, giving scope for high reductions in future contract renewals."

http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11632765/North-Sea-oil-industry-to-get-boost-from-falling-costs.html

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Police evacuated residents living near a dam southwest of Dallas that was poised to burst on Wednesday due to surging floodwaters as emergency officials searched for bodies from storms that killed at least 17 in Texas and Oklahoma.

Water was topping the Padera dam, about 25 miles (40 kms) southwest of Dallas, and Midlothian Police said they have called on people living downstream to evacuate their houses and move livestock to higher ground in case the structure gives way.

Meanwhile, the death toll is set to rise with numerous people still missing in Texas after the storms slammed the states during the Memorial Day weekend, causing record floods that destroyed hundreds of homes, swept away bridges and stranded more than 1,000 motorists on area roads.

"Right now we still have a lot of our neighborhoods underwater," Michael Walter, a spokesman for Houston's Office of Emergency Management, told NBC's "Today" program.

http://www.reuters.com/article/2015/05/27/usa-storms-idUSL1N0YI0NI20150527

MGL: US LPG prices are crashing to new lows here. 

LPG is one of those also-ran commodities, we use it for lighter fuel, portable stoves, and the Indians use most of all for cooking.

Its produced in quantity by wet gas wells, and by Oil shale wells. Eagle Ford producers typically have up to 20% of volume in LPG, for example. 

US demand is pretty constant, growing somewhat as chemical plants gradually debottleneck. So it must be supply thats increasing.

That must mean either Natural Gas supply or Oil, or both supply in the US is increasing. That means the market is way, way, wrong in assuming a supply contraction this year.

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Low oil and gas prices contributed to Vanguard Natural Resource’s decision to make two significant acquisitions in less than 40 days, the Houston company’ chief financial officer said Tuesday morning.

Vanguard last Friday that it is buying up Eagle Rock Energy Partners. That came after its deal to buy LRR Energy LP on April 20. LRR — an affiliate of Lime Rock Resources. Both are onshore, exploration and production master limited partnerships based in Houston. MLPs are tax-advantaged corporate structures.

“One larger, more diverse company was better equipped in the current commodities price environment,” Vanguard Executive Vice President and CFO Richard Robert said in a conference call on Tuesday, noting that Vanguard received consent from LRR to proceed with both deals simultaneously.

Robert argued the expanded Vanguard will be “well positioned when the commodity price recovers.” The two deals are both expected to close in the third quarter. Vanguard is postponing its June 4 annual meeting for a to-be-determined date so unitholders can also vote to approve the Eagle Rock deal. Robert said Vanguard is unlikely to pursue any other deals until after the two purchases close. But he noted that “there’s still some good deals out there.”

Vanguard is paying $474 million to acquire Eagle Rock, not counting $140 million in assumed debt. Vanguard, likewise, is dishing out more than $250 million for LRR, but that does not include another $288 million in assumed net debt.

Robert said the deals strengthen Vanguard’s asset base while also boosting its liquidity and flexibility to reduce its debts moving forward.

The Eagle Rock deal, in particular, boosts Vanguard’s growing presence and assets in the Mid-Continent region, including the Anadarko and Arkoma basins and more. Robert said Vanguard is “very fortunate to be adding another prolific basin that is in the beginning stages of production.”

He said Eagle Rock unitholders will own 22 percent of the combined entity while LRR unitholders will hold 12 percent. The merged Vanguard will have big presences in the Mid-Continent region, as well as the Permian Basin, the Gulf Coast and up into Colorado, Wyoming, Montana and North Dakota.

http://fuelfix.com/blog/2015/05/26/low-oil-and-gas-prices-spur-vanguards-two-big-acquisitions/

Crescent Point Energy Inc, Canada's No.4 independent oil and gas producer, said on Tuesday it has agreed to acquire Legacy Oil + Gas Inc for shares and debt worth C$1.53 billion ($1.23 billion), adding oil production in its core regions in Western Canada and North Dakota.

Crescent Point is offering 0.095 of its own shares for each Legacy share. Based on Crescent Point's closing price on Monday of C$30.00, the offer is worth C$2.85 per Legacy share.

Crescent Point said its offer was a 36 percent premium to Legacy's price prior to April 17, when the company was targeted by activist shareholders determined to place representatives on Legacy's board.

Legacy shares last traded at C$2.92 before being halted on the Toronto Stock Exchange.

Crescent Point said the acquisition, which has been approved by Legacy's board, would add 22,000 barrels of oil equivalent per day to its production. Nearly 70 percent of that production is in the company's core areas in Saskatchewan, Manitoba and North Dakota.

"Legacy's combination of high-growth resource play assets and high-quality, low-decline conventional assets are a tremendous fit with Crescent Point and are expected to enhance our long-term dividend plus growth strategy," Scott Saxberg, Crescent Point's chief executive, said in a statement.

Crescent Point said it is offering a total 18.97 million shares and will assume Legacy's C$967 million in debt.

To pay for its acquisition, Crescent Point will sell 21.06 million shares to a group of underwriters led by BMO Capital Markets and Scotiabank to raise gross proceeds of about C$600 million, though the company can issue a further 3.16 million shares if demand warrants.

Crescent Point said the acquisition will boost its production and cash flow while adding about 102.7 million barrels of established reserves.

The acquisition will raise Crescent Point's expected average production this year by nearly 7 percent to 162,500 boepd.

http://www.reuters.com/article/2015/05/26/legacy-oil-gas-ma-crescent-point-idUSL1N0YH2FQ20150526

Texas oilfields could see strong rains and thunderstorms later this week, though they were spared the heaviest flooding that struck central and eastern Texas over the Memorial Day weekend, the National Weather Service said on Tuesday.

There were reports of flooded roads in parts of the Permian Basin of west Texas and swollen creeks in the Eagle Ford shale area of south Texas, the two largest onshore oil producing regions in the United States.

But there were no reports of extensive damage or prolonged road closures in the oilfields, regional meteorologists said.

The rest of Texas, including areas around Austin, Dallas, and Houston, saw significant damage and some deaths.

The National Weather Service said the likelihood of rain and storms would rise through the remainder of this week.

"Chances of thunderstorms will increase Wednesday and Thursday," said Alec Lyster, senior meteorologist for the National Weather Service in Midland. "Storms either of those days is definitely a possiblity."

Meteorologists said that latest bout of rain could mark an end to a prolonged drought that has affected Texas.

http://www.reuters.com/article/2015/05/26/usa-storms-oil-idUSL1N0YH16U20150526

The anti-trust regulator who raised questions about Noble Energy’s control over the country’s oil and gas resources plans to step down, a move that could potentially resolve the dispute that has stalled Noble’s investment there.

Israel’s Antitrust Commissioner David Gilo announced that he would resign in August because the government was pressing forward with a deal that undercut competition to develop the country’s newly discovered energy reserves, according to reports in Reuters.

An inter-ministerial alliance recently agreed to a deal that would allow Noble to continue its plans to operate the Tamar basin and sell its gas by divesting of some assets there, and jointly market gas from the Leviathan basin, according to reports in The Jerusalem Post. But the country’s antitrust commissioner has disagreed with the proposal.

Noble Energy said in a statement that it remains actively engaged in dialogue with the government to resolve antitrust concerns, but until a final agreement is reached, the Houston-based oil company will not move forward with developing the Leviathan and expanding the Tamar.

“A stable and attractive investment climate is necessary for continued exploration and development, investment in infrastructure and the entry of new companies into the oil and natural gas sector,” spokeswoman Paula Beasley said in a statement Saturday. “We are working cooperatively with the government in their efforts to develop an appropriate and workable solution.”

Keith Elliott, who oversees Noble’s Eastern Mediterranean operations, recently spoke with the Houston Chronicle about the ongoing negotiations and the future of the company’s investment in the Mediterranean.

“We’ve been in Israel for a long time,” he said. “We’ve been through ups and downs. We’ve been through the emergence of the regulatory environment there from the day when there was nothing offshore. And we’ve been through period of conflict and our commitment has been there. We are comfortable working with Israel. We just need to have these things resolved so we can move forward.”

Colombia's Ecopetrol SA expects its annual investment budgets to be around $6 billion through 2020, it said in a strategic plan published on Tuesday, down from recent years as it pursues a structural savings target of $1 billion a year.

The plan is the first since Juan Carlos Echeverry took over as CEO in early April. It foresees production of 870,000 barrels per day by 2020, up from 722,000 barrels currently, and for the company to add 1.7 billion barrels of proven reserves by the same year.

Ecopetrol plans to invest around $4 billion per year in production and boost reserves by increasing the amount of oil that can be recovered from existing fields through technologies including injection of liquids and gases.

The exploration budget, which was slashed to $600 million this year, is expected to be between $1 billion and $1.5 billion per year until 2020, the company's e-mailed presentation said.

Ecopetrol is by far the Andean country's biggest oil company and oil sector representatives say spending on exploration is increasingly urgent as reserves fall to less than seven years' worth at the country's current million-barrels-per-day output.

The company said it is budgeting for an accumulated $2.5 billion in spending on transport and logistics between now and the end of the decade.

Ecopetrol's target of saving a total of $6 billion through 2020 is part of an efficiency drive that will seek savings across the company's operations. It also aims to cut net debt over the period but did not give a target figure.

http://www.reuters.com/article/2015/05/26/ecopetrol-strategy-idUSL1N0YH0XS20150526

“Like pushing a rock up a hill”

That’s how some trader’s view the current disconnect between the physical market for crude oil and the futures market with speculators pushing futures prices higher while the physical market remains moribund.

Before continuing, it’s important to make the distinction between the physical market for crude and the crude futures market.

Physical (also known as cash) market prices are determined by the supply and demand for physical crude. Here traders buy oil from the producer and sell it to the refiner, for immediate delivery. Physical buyers and sellers have a direct pulse on the market and may feel immediately when it is well supplied, or not.

Futures prices, on the other hand, are determined by the supply and demand for crude futures positions. Futures markets provide a means for trading the probability of where crude prices will be at certain points in the future; this allows physical market participants a means by which they can hedge their position and so reduce risk.

The physical crude market tends to show weakness (i.e. too much crude swashing about) when the premium for the best crude grades weakens against the benchmark Brent. One of the most favoured grades in Europe is Azeri Light due to its high quality.

Over the past couple of months physical crude traders have noted the weak premiums for Azeri Light versus Brent as other cargoes, particularly from West Africa compete to supply crude into an already oversupplied Atlantic Basin market.

This apparent disconnect between the futures and the physical market appears eerily similar to mid-2014, just prior to crude prices collapsing. So is the current weakness in the physical crude market a precursor to an imminent weakening in crude futures prices?

Don’t bet on it - at least not based solely on what the physical market is doing.

While the physical fundamentals of supply and demand prevail eventually, the physical market may not always be able to anchor futures prices for days, months or even years.

If commodity futures prices rise too much, perhaps as a result of speculative interest, as there is now, physical supplies will start to be delivered against short positions (a manufacturer looking to hedge its inventory of raw materials might have this kind of position).

In practice, there is never enough physical material readily available to deliver against all the short positions, so rising futures prices can only be offset by buying back crude futures contracts rather than making physical delivery. It takes time to divert and accumulate sufficient physical crude supplies to meet a rise in futures prices driven by speculative rather than fundamental factors.

To get an idea of the extent to which this process is occurring take a to look at the net contract short position for commercial hedgers from the US CFTC weekly Commitments of Traders report. Back in mid-2014 the net short position amongst commercial hedgers (actual producers and users of crude) rose to around 500,000, a record level. This position has since fallen to just over 300,000, but it is still high on an historical basis.

As we know from the months leading up to the oil market crash that began in the middle of 2014, oil futures prices can divorce themselves from the physical fundamentals for a long time.

The price of crude, as with any other commodity is only worth what someone is prepared to pay for it. The market’s perception of scarcity in mid-2015 is such that participants in crude futures markets are now willing to pay less than half what they were paying just one year ago.

While theory suggests crude futures markets are anchored to the physical market as contracts expire, in reality the link is a lot more tenuous. As with the myth of Sisyphus the rock will eventually start to roll back. Timing when that will take place, and the catalyst involved, is a whole different matter.

Read more: http://uk.businessinsider.com/there-is-a-disconnect-between-crude-oil-futures-and-the-physical-market-2015-5?r=US#ixzz3bFuHlxNj

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Chinese state-owned energy giant China National Petroleum Corp (CNPC) has discovered more than 100 million tonnes of tight oil geological reserves in its Changqing field, a company-run newspaper said on Tuesday.

The discovery, located in the western province of Shaanxi, is the first Chinese tight oil find to surpass 100 million tonnes, the China Petroleum Daily said.

Technically recoverable reserves may be considerably lower. Tight oil production capacity in the Ordos basin, where Changqing is located, is more than 1 million tonnes, the paper said.

CNPC is Asia's largest oil producer and the parent of PetroChina Co Ltd..

In the first quarter of 2015, Changqing produced 6 million tonnes of crude oil, or 487,600 barrels per day, according to the official Xinhua News Agency's China Oil, Gas & Petrochemicals (OGP) newsletter.

http://www.reuters.com/article/2015/05/26/us-china-oil-discovery-idUSKBN0OB0YK20150526

Japan's Inpex Corporation is thought to be struggling to keep its $US34 billion ($A43.5 billion) Ichthys liquefied natural gas project in northern Australia on schedule because of bottlenecks at a South Korean shipyard that is manufacturing a massive offshore platform.

The problems highlight the huge risks that remains in the start-up of $US180 billion worth of LNG projects in Australia during the next two or three years.

Respected energy consultancy Wood Mackenzie is predicting delays not just at Ichthys but at Chevron's large Wheatstone LNG project in Western Australia, and a likely slower-than-expected ramp-up at the over-budget $US54 billion Gorgon project amid various challenges at the sites. The combined impact would be an 11-million-tonnes reduction in Australia's 2015-19 LNG output  than the consultancy was forecasting six months ago.

The 120,000-tonne offshore platform for Ichthys, the world's largest semi-submersible platform, is due to set sail for Australia in early 2016 from the Samsung Heavy Industries shipyard in Geoje, South Korea. But the yard is stretched with other major construction projects, including Royal Dutch Shell's giant Prelude floating LNG vessel, also to be sited off the far north-west Kimberley coast.

A second large structure, a ship to be used to produce light oil at the Ichthys field in the Browse Basin, is being built at the Daewoo shipyard, also in Geoje.

Inpex chief executive Toshiaki Kitamura told investors earlier this month that the Ichthys project was 68 per cent complete and confirmed the start-up for late 2016, a date reiterated by Inpex's head in Australia, Seiya Ito, last week.

But the overstretched shipyard  has long been seen as a problem, with Ichthys managing director Luis Bon last year describing it as a "hot-point issue".

Inpex general manager external affairs Bill Townsend said on Friday that areas of the project were "somewhat behind" and pointed to the "heavy workload" at the Korean yards.

http://www.afr.com/business/energy/gas/inpex-chevron-facing-delays-as-worries-grow-on-lng-startups-20150525-gh7t8e

A wildfire raging in northeastern Alberta has shut down around 233,000 barrels per day (bpd) of production at three oil sands projects and is expected to remain out of control for "some while yet," a provincial government spokesman said on Monday.

Over the weekend, Cenovus Energy Inc and Canadian Natural Resources Ltd evacuated staff and halted output at two sites as a precaution against the rapidly spreading forest fire.

On Monday, CNRL said it also cut production at its nearby Kirby South thermal project to 12,000 bpd from around 30,000 bpd.

In total, roughly 9 percent of Alberta's crude output is offline as a result of the fire, with no clear indication of when production can resume.

The Alberta government's wildlife information officer, Geoffrey Driscoll, said the fire, which started on Friday, has grown to more than 8,000 hectares and is still out of control.

"With the warm weather, it's not going to be under control (on Monday) for sure, at least until we get some more firefighters and or we get some weather that helps cool down the area," Driscoll said.

Cenovus evacuated about 1,800 workers and shut down production at its Foster Creek oil sands site, situated on the Cold Lake Air Weapons Range (CLAWR) about 25 kilometers (15.5 miles) north of the wildfire.

The project, a 50-50 joint venture with ConocoPhillips , averages about 135,000 bpd.

"We continue to monitor the situation and we're preparing to get back in there quickly to start up our operations whenever we get word that the situation is under control," Cenovus spokesman Brett Harris said.

Harris said the full impact on Cenovus production would not be clear until the fire is under control, but the company estimated if the shutdown lasts five days and a gradual ramp-up starts after that, the impact would be about 5,000 bpd for the quarter.

CNRL evacuated personnel from its Primrose oil sands project due to the nearby fire and shut in about 80,000 bpd of crude production.

The government declared a province-wide fire ban on Monday after an unusually hot dry spring.

http://www.reuters.com/article/2015/05/25/canada-oil-sands-idUSL1N0YG0P120150525

Weekly Summary: Rigs engaged in exploration and production in the U.S. totaled 885 for the week ended May 22, 2015. This was down by three from the previous week’s rig count and indicates the lowest level in almost six years.

Following the latest decline, the current nationwide rig count is now less than half of the prior-year level of 1,857. It rose to a 22-year high in 2008, peaking at 2,031 in the weeks ending Aug 29 and Sep 12.

Rigs engaged in land operations rose by 3 to 853. Inland waters activity was down by 1 to 3 rigs and offshore drilling was down by 5 to 29 units.

Natural Gas Rig Count: The natural gas rig count decreased by 1 to 222. As per the most recent report, the number of natural gas-directed rigs is down 73% from its recent peak of 811 reached in 2012. In fact, the current natural gas rig count remains 86% below its all-time high of 1,606 reached in late summer 2008. In the year-ago period, there were 325 active natural gas rigs.

Oil Rig Count: The count which rocketed to 1,609 in Oct 2014, the highest since Baker Hughes started breaking up oil and natural gas rig counts in 1987, dived further (by 1) to 659. As a result of this drop, the current tally is now the lowest in more than four and a half years and well below the previous year’s rig count of 1,528.

Miscellaneous Rig Count: The count (primarily drilling for geothermal energy) was down by 1 from the previous week to 5.

Rig Count by Type: The number of vertical drilling rigs was up by 3 to 117, while the horizontal/directional rig count (encompassing new drilling technology that has the ability to drill and extract gas from dense rock formations, also known as shale formations) was down by 6 to 768. In particular, directional rig units decreased by 4 from last week’s level to 85.

Gulf of Mexico (GoM): The GoM rig count was down by 5 to 28.

http://www.zacks.com/stock/news/176016/record-fall-in-us-rig-count-down-for-twentyfourth-week

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Attached Files

China's consumption of natural gas decreases 5.9% year on year to 12.7 billion cubic meters (cu m) in Apr 2015, according to the National Development and Reform Commission.

Last month, the country's natural gas output declined 2.0% year on year to 9.8 billion cu m, while its natural gas imports plunged 20.3% to 3.8 billion cu m.

In Jan-Apr 2015, China's consumption of natural gas reached 62.9 billion cu m, up 2.4% than that in the same period of previous year.

The country saw its natural gas output increase 4.7% to 45 billion cu m in the first four months. Its natural gas imports totaled 19.8 billion cu m in the period, reflecting a year on year growth of 7%.

http://en.chinamining.com.cn/News/2015-05-25/1432517584d72312.html

Saudi Arabia's rapid transition into one of the world's largest oil refiners adds an extra dimension to the oil exporter's role as the driver of OPEC policy.

When it attends OPEC's next meeting in two weeks, it does so with major new state-of-the-art oil refineries that can profit from cheaper crude and reviving world fuel demand - exactly as international oil firms have over the past six months.

The kingdom now has stakes in more than 5 million barrels per day (bpd) of refining capacity, at home and abroard, landing it a place among the global leaders in making oil products. Its own target of 8-10 million bpd of refining firepower would eclipse even ExxonMobil.

"Saudi have moved into the product business in a big way," said Fereidun Fesharaki, chairman of FGE energy.

Its oil trading arm, Aramco Trading, could soon find at least two thirds of its trading focused on products such as diesel, gasoline and heating oil rather than crude, Fesharaki said.

Years of investment was designed to fuel the transport, air conditioning and power generation for the kingdom's economic growth. But as OPEC members fight for market share, Aramco's refineries also give it a natural outlet for its 10 million bpd of crude production.

"In contrast with the crude market which is shrinking, the product market is becoming more global," said Antoine Halff, chief oil analyst with the International Energy Agency.

The crude oil price rout this year catapulted refining to the fore; trading and refining last year soared to 60 percent of integrated oil companies' first quarter earnings, compared with 18 percent last year, according to Reuters calculations.

"The crude is so cheap it's pretty much free for them," said Amrita Sen of Energy Aspects. "The margins are going to be massive. It makes trade flows in products very different."

"The Saudis have a much wider market there because they are competing globally," Halff said. "They diversify vertically by capturing different parts of the value chain and it becomes a hedge and it gives them a lot more market access."

Aramco has added more than 1 million bpd in capacity through a controlling stake in Korea's S-Oil as well as its two heavy hitting refineries at home, Yanbu and Yasref, both with 400,000 bpd in throughput. Jizan, due on in the Kingdom in 2018, would add a further 400,000 bpd.

The growth puts Aramco's owned or equity stakes refining at 5.4 million bpd, at least 40 percent above a decade ago. Aramco itself markets more than 3 million bpd of that, tying it with Shell as the world's fourth largest oil refiner.

http://www.reuters.com/article/2015/05/22/saudi-refining-evolution-idUSL5N0YC4AI20150522

India plans to reform rules governing the level of discounts upstream state oil firms including ONGC offer to retailers, a senior finance ministry official said on Friday, a move that could expedite the sale of a stake in the company.

The government hopes to sell shares in ONGC and India Oil Corp. to raise about a third of its budget target for asset sales of $11 billion - and reduce its fiscal deficit to 3.9 percent of GDP in the 2015/16 fiscal year.

Currently ONGC (Oil and Natural Gas Corp), Oil India and GAIL (India) sell crude and fuels like cooking gas at discounted rates to partly compensate retailers for losses they incur on selling fuels at government-set rates.

But the finance ministry and oil ministry are in talks to work out a mechanism for easing the subsidy burden for the upstream companies, Ratan P. Watal, expenditure secretary at the Ministry of Finance, told reporters on Friday.

Earlier, sources told Reuters that the oil ministry had set a new subsidy formula for the April-June quarter that would exempt upstream companies from discounting sales of crude oil and refined products if global oil prices are up to $60 per barrel.

Reuters reported exclusively earlier that the oil ministry had set interim rules to exempt upstream state firms from giving any discounts on crude and refined fuels if global oil prices average up to $60 a barrel this quarter.

For prices beyond $60 a barrel the companies will have to give a discount of 85 percent of the incremental oil prices and this discount will rise to 90 percent for additional prices beyond $100 a barrel.

ONGC chairman D.K. Sarraf later confirmed receiving a government order concerning the subsidy formula and said the details were in line with Reuters' reporting.

On the top of the discount, state-run fuel retailers - Indian Oil Corp, Hindustan Petroleum Corp and Bharat Petroleum - are compensated by the finance ministry for selling cooking gas and kerosene at cheaper rates.

http://www.reuters.com/article/2015/05/22/india-energy-idUSL3N0YD1QG20150522

China's independent buyers of liquefied natural gas (LNG) are taking their first cargoes of the fuel as Beijing permits third-party use of idle capacity at import terminals and approves the new players' long-term plans to build their own facilities.

Privately run city gas distributor ENN Group and onshore LNG investor Guanghui Energy Co Ltd were among the first to start importing spot cargoes, renting space at PetroChina's underutilised receiving terminals at Rudong and Dalian and each bringing in at least one cargo since late 2014, according to company officials.

Other new importers include trader JOVO Group and independent oil and gas company Pacific Oil and Gas as China works to meet clean energy targets calling for natural gas' share in its energy mix to double.

Beijing is freeing up the nation's LNG trade as part of broad reforms that allow private companies to invest in oil and gas exploration as well as pipelines and tank farms, and to engage in importing and exporting. The aim is to help secure supplies while boosting competition and efficiency in an energy sector long dominated by state firms.

Last year in April, Beijing said parties such as ENN Group - parent of Hong Kong-listed ENN Energy Holdings - and Shenzhen Gas could lease and use that idle infrastructure, and independent energy companies and small buyers are taking advantage of Asia's low spot prices to bring in LNG at a lower cost than some of the supplies contracted by state importers such as PetroChina.

Companies are also building and planning their own receiving and storage facilities so they can have more control over their future purchase prices and volumes.

While welcoming the new buyers, suppliers remain cautious, especially when negotiating longer-term supplies with the independent companies.

"They don't really have a strong balance sheet, or lack a pipeline network," said a marketing executive with a North American exporter.

Recently a small Chinese buyer had to turn away an LNG delivery from Spain's Gas Natural Fenosa because it lacked the credit rating to swing the deal, according to industry sources and ship tracking services on the Thomson Reuters terminal.

http://www.reuters.com/article/2015/05/22/china-lng-independents-idUSL3N0YD48P20150522

While the 12 counties with Bakken production between North Dakota and Montana have lost the majority of their horizontal rigs over the last eight months, core areas of the shale play remain attractive, especially as oil prices creep towards $70/bbl, says an analyst with research and consulting firm GlobalData.

According to Jonathan Lacouture, GlobalData’s upstream analyst for onshore Americas, IP30 rates, which measure a well’s average production over its first 30 days of active life, show that there are clear productivity differences between each county.

Lacouture explained, “Mountrail and Mckenzie Counties both possess median IP30 values of 550 bopd, between 17% and 50% greater than the other counties which contain productive Bakken areas.

“Both counties possess break-even prices that still generate profit in the current market; however, the margin of this financial gain is dramatically lower than the same date last year. This is reflected starkly by the over 50% drop in active rigs capable of multi-stage lateral drilling in the Bakken.”

The analyst adds that rig activity will likely remain depressed until prices are up to twice their break-evens. Rig counts have already begun to level off in core areas as the price continues to slowly rise and economic returns increase with it.

Lacouture continued, “The scalable nature of the Bakken affords it a flexibility, which allows marginal cost barrels to be gradually added or removed, as quickly or slowly as prices allow.

“However, the more frontier counties, which have lost virtually every active rig, may not see renewedexploration and production efforts in the near term, as they require higher oil prices to remain worthwhile investments.”

Bakken crude also sells at a relatively large discount to WTI crude due to high transportation costs, contributing further uncertainty to already wary investors and operators.

The analyst concluded, “If a given Bakken well produces over 50% of its total estimated ultimate recovery in the first nine months of activity, withholding on drilling and completing wells by a few months to a year, until prices climb to, say, above $70/bbl, will prove more economically fruitful than the alternative.”

http://www.worldoil.com/news/2015/5/22/core-bakken-assets-remain-economical-despite-low-oil-prices-globaldata-says

The U.S. Offshore rig count is 29, down 5 rigs from last week, and down 31 rigs year over year.